Industry Updates

BlackRock launches synthetic S&P 500 ETF

Driven by increasing client demand for synthetic replication with US equities

Tom Eckett

Brett Pybus BlackRock

BlackRock has launched a synthetic-version of its S&P 500 ETF in response to increasing client demand for a swap-based structure in US equities, ETF Stream can reveal.

The iShares S&P 500 Swap UCITS ETF (I500) is listed on Euronext on Monday and London Stock Exchange and Xetra on Tuesday with a total expense ratio (TER) of 0.07%.

BlackRock currently offers a physically replicated version of I500, the $37bn iShares Core S&P 500 UCITS ETF (CSPX), which is the largest ETF on the European market.

JP Morgan and Citi will be the swap counterparties. The firm added it will increase this number as assets in the ETF grow.

With certain exposures such as US equities, there are a number of performance advantages when investing in synthetic ETFs.

Synthetic ETFs, such as I500, do not pay withholding tax on dividends as the substitute basket of the ETF is restricted to non-dividend paying stocks.

Meanwhile, physical ETFs domiciled in Luxembourg pay 30% withholding tax on US equity dividends while Irish-domiciled ETFs pay 15%.

Brett Pybus (pictured), head of iShares EMEA investment and product strategy at BlackRock, said this can lead to a 0.30% performance boost.

He added: “With I500, we are expanding choice for investors. There is currently demand for swap-based ETFs, particularly with the S&P 500 where investors can realise a performance pick-up.”

Physical ETFs are safer than synthetic ETFs – a misconception?

Demand for synthetic US equity ETFs has been high this year as investors look to take advantage of the structure's tax benefits. In February, Invesco saw its synthetic S&P 500, the Invesco S&P 500 UCITS ETF (SPXS), crash through the $10bn assets under management (AUM) barrier.

Featured in this article